Top patent court to reconsider validity of financial software patents

Original ruling "failed to follow the Supreme Court's instructions."

The Federal Circuit Court of Appeals, the patent-friendly court that has jurisdiction over all patent appeals, has agreed to reconsider a controversial decision to approve a financial software patent. CLS Bank has accused Alice Corp. of violating its patents claiming a computerized strategy of having a trusted third-party hold funds in escrow on behalf of two other contracting parties. All judges on the appeals court will now have a chance to review the divided July decision of a three-judge panel to approve the patents.

The July decision alarmed the technology industry. An amicus brief filed by Google, Twitter, HP, and Red Hat urged the appeals court to reconsider the decision. The Electronic Frontier Foundation and Public Knowledge also filed a brief urging reconsideration. On Tuesday, the Federal Circuit heeded their cries and announced that it would rehear the case en banc, meaning that all judges on the court would participate in the case.

It's a little bit baffling that the rehearing is even required. As Judge Sharon Prost wrote in her dissent to the original ruling, "the majority has failed to follow the Supreme Court's instructions—not just in its holding, but more importantly in its approach." In 2010, the Supreme Court rejected a patent on "a method for managing the consumption risk costs of a commodity sold by a commodity provider" for being too abstract. The patents at issue in this case claim a similarly abstract financial strategy, with the key difference that the strategy is to be implemented on a computer. But the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention.

In its brief urging the court to reconsider the case, Google and the other tech companies wrote that "a disturbing number of high-tech patents amount to no more than describing an abstract idea at a high level of generality and saying to perform it on a computer or over the Internet- without providing any of the specifics that transform abstract ideas into patentable inventions."

Perhaps the full Federal Circuit will take this as an opportunity to invalidate this kind of broad software patent. And if the Federal Court upholds the patent, we'll be rooting for another unanimous reversal by the Supreme Court.

30 Reader Comments

Perhaps the full Federal Circuit will take this as an opportunity to invalidate this kind of broad software patent.

How about we just divest ourselves of software patents altogether? Software is already protected under copyright and potentially trademark. That's enough. We're already to the point where patents are being handed out for things which were done long ago, but now some company added, "on a computer" or "on a smart phone" to the description. Enough already. If we continue down this path, China is going to beat us to death with our own IP system. And China is a notoriously protectionist nation, so expect their government to protect Chinese IP while ignoring other countries patents and what not as they're already doing. This is not going to end well for the US.

Perhaps the full Federal Circuit will take this as an opportunity to invalidate this kind of broad software patent.

How about we just divest ourselves of software patents altogether? Software is already protected under copyright and potentially trademark. That's enough. We're already to the point where patents are being handed out for things which were done long ago, but now some company added, "on a computer" or "on a smart phone" to the description. Enough already. If we continue down this path, China is going to beat us to death with our own IP system. And China is a notoriously protectionist nation, so expect their government to protect Chinese IP while ignoring other countries patents and what not as they're already doing. This is not going to end well for the US.

I agree that would be the best approach. But I'm afraid we may have to get there by baby steps.

Google and the other tech companies wrote that "a disturbing number of high-tech patents amount to no more than describing an abstract idea at a high level of generality and saying to perform it on a computer or over the Internet- without providing any of the specifics that transform abstract ideas into patentable inventions."

The 3-judge panel Alice decision is so far out of whack with respect to what the Supreme Court said in Bilski and Prometheus that I think reversal by the Fed. Circuit sitting en banc is virtually certain, both because it's the legally correct thing to do and because if they didn't asking for a very stern lecture from the Supreme Court.

Unless they've gotten really worked up (not a phrase that applies to appellate judges too often) they're unlikely to issue a sweeping opinion on software patentability though. The original district court opinion being appealed did, in my opinion, apply the incorrect analysis when finding the claim at issue to be unpatentable (I'm not saying it is or it isn't - just that the judge asked the wrong questions). The Fed. Cir.'s safest route, and I think the legally correct one, will be to reverse and remand with instructions to the district court to try again, applying the correct* test.

(The "correct" test in this case being something of a joke since no one knows what it is.)

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

Perhaps the full Federal Circuit will take this as an opportunity to invalidate this kind of broad software patent.

How about we just divest ourselves of software patents altogether?

I agree that would be the best approach. But I'm afraid we may have to get there by baby steps.

Effectively this. The argument that the implementation of an idea in the software world is embodied in the software itself, which is (strongly) protected both by copyright, obfuscation, and potentially ever stronger technical measures, is a good one. Combined with the extremely rapid pace of innovation, the extremely low barrier to entry, R&D driven by software development itself, and the haphazard way in which they came to be (effectively willed into existence by CAFC against the wishes of the PTO and precedence by SCOTUS), I think there is every reason to work for abolishment of software patents alone, returning to the pre-80s/70s. Software patents are new and unique enough that there is no need to deal with the much grayer debate of standard patents or IP in general.

At the same time though interests have already become powerfully entrenched, and simultaneously the Legislature is facing near total gridlock even in the face of direct existential threats the United State's future. For the time being direct abolishment is probably not on the table, which means we'll need to take what we can get and try to slowly turn the tide.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

Exactly the way I felt. And if they still ruled this way after coming to the same understand them I would agree with them and dissolve all software patents.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

UI design, like the "swipe to unlock" patent, isn't a mathematical formula. I need someone to help me connect the dots here.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

Exactly the way I felt. And if they still ruled this way after coming to the same understand them I would agree with them and dissolve all software patents.

IANAL and I am not intent on starting a flame war - this is a legit question: If all software patents were suddenly dissolved, how would it affect recent and on-going software patent disputes? As one example - what would be the result of the recent ruling against Samsung in the case with Apple and, would the +$1 billion be void or even returned to Samsung (if already paid)? Or would that fine essentially be grandfathered in as something that was decided according to the existing laws at the time?

I recognize that this process will take time - a long time - but I am generally curious how all of this would play out and I choose this particular case as one example since it is so massive and relevant at this time. (Obviously there are many many other companies, cases, and rulings that would be potentially affected by such events.)

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

UI design, like the "swipe to unlock" patent, isn't a mathematical formula. I need someone to help me connect the dots here.

Well... I disagree? Swipe-to-unlock is a perfect example of taking an unpatentable concept (because physical sliding door latches have been around for centuries) and making it patentable by simply saying "it's on a computer! [or smartphone]," and computer software is fundamentally all just math...

But wait, I thought this is the same court that Tim Lee branded as "rogue"? A court, that in his words, had been "captured" by the patent bar and infected by an "relentless pro-patent bias" and that can be stopped "[o]nly by extending jurisdiction over patent appeals to other appeals courts that are less biased toward patent holders"? How is a circuit that is so biased able to check-and-balance itself through the en banc process like other appeals courts do? How are judges "who live and breathe patent law" able to see through their "insular thinking" and question whether a ruling issued by a panel was properly decided?

But wait, I thought this is the same court that Tim Lee branded as "rogue"? A court, that in his words, had been "captured" by the patent bar and infected by an "relentless pro-patent bias" and that can be stopped "[o]nly by extending jurisdiction over patent appeals to other appeals courts that are less biased toward patent holders"? How is a circuit that is so biased able to check-and-balance itself through the en banc process like other appeals courts do?

Reality has a funny way of throwing cold water on an lousy journalism.

I don't see how this is a "gotcha." The en banc panel hasn't ruled yet. It may very well uphold the ruling. Or it may reverse the ruling narrowly out of fear that otherwise the Supreme Court will reverse on broader grounds.

But wait, I thought this is the same court that Tim Lee branded as "rogue"? A court, that in his words, had been "captured" by the patent bar and infected by an "relentless pro-patent bias" and that can be stopped "[o]nly by extending jurisdiction over patent appeals to other appeals courts that are less biased toward patent holders"? How is a circuit that is so biased able to check-and-balance itself through the en banc process like other appeals courts do? How are judges "who live and breathe patent law" able to see through their "insular thinking" and question whether a ruling issued by a panel was properly decided?

Reality has a funny way of throwing cold water on an bad journalism.

This is the exact same court that made the blatantly incorrect ruling in the first place.

I don't see how this is a "gotcha." The en banc panel hasn't ruled yet. It may very well uphold the ruling. Or it may reverse the ruling narrowly out of fear that otherwise the Supreme Court will reverse on broader grounds.

I think an en banc reconsideration by itself refutes your "rogue court" thesis since it shows up how crude, broad and unsophisticated your characterisation and article was. You branded an entire circuit as "rogue" without ever mentioning or considering the back-and-forth that has been going on within the Federal Circuit itself as different panels in different cases have issued conflicting rulings. Public Knowledge's amicus brief in this case above has a catalog of other Federal Circuit cases that seem to contradict the reasoning of the CLS Bank panel (a case that itself had a dissent). Had you noticed that, you might have seen that the Federal Circuit was engaged in doing exactly what the Supreme Court wanted it to do and that the "rogue" label was a ridiculous overreach.

ReaderBot wrote:

This is the exact same court that made the blatantly incorrect ruling in the first place.

So what is your point?

No it's not. The previous ruling was issued by two of the judges on the court - now ALL the judges on the circuit will hear and rule on the case. Furthermore, this en banc reconsideration highlights that an appeals court is made up of multiple judges who don't always agree and that there is an back-and-forth even within the court as the circuit tries to come to an internal consensus on a matter of law. That back-and-forth can be messy and take time because it can only take place when there are cases before judges and different judges sit on different cases. The judges on this circuit take their judicial obligations seriously. It was a disservice to these judges who sits on the circuit to attack them as "rogue" - and that includes the judges who issued the decision that will be up for review.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

UI design, like the "swipe to unlock" patent, isn't a mathematical formula. I need someone to help me connect the dots here.

There is no operation a computer can perform that isn't math. There is a reason they are called computers.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

Exactly the way I felt. And if they still ruled this way after coming to the same understand them I would agree with them and dissolve all software patents.

IANAL and I am not intent on starting a flame war - this is a legit question: If all software patents were suddenly dissolved, how would it affect recent and on-going software patent disputes? As one example - what would be the result of the recent ruling against Samsung in the case with Apple and, would the +$1 billion be void or even returned to Samsung (if already paid)? Or would that fine essentially be grandfathered in as something that was decided according to the existing laws at the time?

I recognize that this process will take time - a long time - but I am generally curious how all of this would play out and I choose this particular case as one example since it is so massive and relevant at this time. (Obviously there are many many other companies, cases, and rulings that would be potentially affected by such events.)

I believe that I read that there were no software patents enforced in the Samsung vs. Apple trial. It was all trade dress and such.

In its brief urging the court to reconsider the case, Google and the other tech companies wrote that "a disturbing number of high-tech patents amount to no more than describing an abstract idea at a high level of generality and saying to perform it on a computer or over the Internet- without providing any of the specifics that transform abstract ideas into patentable inventions."

One of the requirements for a patent is instructions of sufficient detail that an expert in the field can replicate the invention. If we accept for the sake of argument that software patents are a good idea, we must require "inventors" to produce sufficient instructions. In this case, that means source code.

Even if the Supreme Court found an excuse to invalidate all software patents, we'd still have lawyers combing through patents claim by claim to see what still stands. And there might be a 5th Amendment issue since SCOTUS would be "taking" something of value from patent holders. Might be simpler to forbid any new software patents, then issue stern interpretation instructions to weaken the existing ones without triggering a "taking" event.

In that case, xorloser, the past judgements would stand... just like you don't get your money back if you license a patent which later got invalidated.

There is no operation a computer can perform that isn't math. There is a reason they are called computers.

Exactly. The problem is that modern computers are so far abstracted from the math for ordinary people to understand that. Most people hear computer and don't think about what that word even means or where it came from. They have no idea that computers existed before electronics: http://en.wikipedia.org/wiki/Human_computer

This article drastically oversimplified the matter (and completely missed the problem at the same time). The issue is that the Supreme Court suggested in Prometheus that when evaluating section 101 you needed to look for something inventive. On its face that suggestion by the Surpeme Court was unwise and made no sense. Section 101 is used to test whether the subject matter is patentable subject matter (directed toward method, system, etc.). The question of whether it is inventive (e.g., meets section 103) is a completely different question. In addition, Judge Prost was misreading the following quote “that a process that focuses upon the use of a natural law also contain other elements or a combination of elements, sometimes referred to as an ‘inventive concept,’ sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the natural law itself.” Now, it is true that such language as was used by the Court in Prometheus was poor (as was the whole section 3 of Prometheus opinion). So, in a sense the CAFC was left with another bad opinion from the Supreme Court and tried to make the best of it. However, the CAFC opinion wasn't that remarkable. The majority, based on about 50 years of Supreme Court precedent, determined that the most probably meaning of the language used by the Supreme Court was that the Supreme Court was suggesting that more care is needed when determining whether the invention covers an abstract idea or a law of nature (which are the reasons an otherwise patentable method should be considered as not being patentable subject matter). Otherwise the Surpeme Court was trying to overrule Congress without a basis for doing so (which is obviously not constitutional).

So the rule used in CLS Bank was probably fine. I do agree with Judge Prost, however, that the method claims were not patentable under the rule announced and followed by the majority. It seems the majority in CLS Bank was fooled by the use of the shadow record and thus failed to realize the patent claims really were just abstract ideas cleverly packaged as a method claim. That is what I expect to change during the en banc proceeding. I am also curious to see how system claims are handled en banc. The Supreme Court has never said that a system claim can be considered an abstract idea (and thus not patentable subject matter) but the Supreme Court was less than clear on that point. Personally I think a bright line rule makes sense but the Supreme Court knows it doesn't understand patent law and therefore runs away from any clarity with all possible speed.

The real problem is that the test the Supreme Court is trying to fashion is poorly suited to helping one determine whether something is patentable subject matter. The idea of what is and is not an abstract idea, for example, has always been abstract (and has been and always will be easy to overcome - the new rules, whatever they are, will just need a different approach). But that is okay, section 101 was always intended to be a course filter. The only way to change that is to improperly combine section 102 or section 103 into section 101. My hope is that the rule will be more carefully applied and then on appeal the Supreme Court can decide whether a system claim can be considered an abstract idea.

I don't see how this is a "gotcha." The en banc panel hasn't ruled yet. It may very well uphold the ruling. Or it may reverse the ruling narrowly out of fear that otherwise the Supreme Court will reverse on broader grounds.

I think an en banc reconsideration by itself refutes your "rogue court" thesis since it shows up how crude, broad and unsophisticated your characterisation and article was. You branded an entire circuit as "rogue" without ever mentioning or considering the back-and-forth that has been going on within the Federal Circuit itself as different panels in different cases have issued conflicting rulings. Public Knowledge's amicus brief in this case above has a catalog of other Federal Circuit cases that seem to contradict the reasoning of the CLS Bank panel (a case that itself had a dissent). Had you noticed that, you might have seen that the Federal Circuit was engaged in doing exactly what the Supreme Court wanted it to do and that the "rogue" label was a ridiculous overreach.

It's true that the Federal Circuit is a complex institution with internal disagreements about patent law. It's also true that the median Federal Circuit judge has typically been much more "pro-patent" than the median Supreme Court justice, and that as a result it has handed down decisions like State Street that seem impossible to reconcile with the applicable Supreme Court precedents.

I also think the CAFC is less "rogue" than it was 10 years ago, largely because the court got tired of being reversed every time one of its decisions went up to the Supreme Court. But even with its recent moderation, most of its 101 decisions since Bilski strike me as more permissive than a fair reading of the applicable Supreme Court precedents would suggest.

It's true that the Federal Circuit is a complex institution with internal disagreements about patent law. It's also true that the median Federal Circuit judge has typically been much more "pro-patent" than the median Supreme Court justice, and that as a result it has handed down decisions like State Street that seem impossible to reconcile with the applicable Supreme Court precedents.

I also think the CAFC is less "rogue" than it was 10 years ago, largely because the court got tired of being reversed every time one of its decisions went up to the Supreme Court. But even with its recent moderation, most of its 101 decisions since Bilski strike me as more permissive than a fair reading of the applicable Supreme Court precedents would suggest.

I don't agree with your conclusions but I respect that they are defensible and arguable. What's unfortunate is that precious little of the equivocation and complexity that you exhibit and acknowledge in your comments here made it into your Federal Circuit article. I don't disagree with your advocacy or that writers for Ars often have a strong point of view. What deeply dismayed me with your last piece is that this point of view came at the expense of basic fairness and even-handedness, all to fire a cheap shot at the circuit.

Perhaps the full Federal Circuit will take this as an opportunity to invalidate this kind of broad software patent.

How about we just divest ourselves of software patents altogether? Software is already protected under copyright and potentially trademark.

So you want to replace software patents with...protection that lasts longer?

What nobody has been able to explain to me is why it is legitimate to patent a device that is based on long-known physical principles, and implemented by assembly from commercially available parts equipment, but somehow not legitimate to patent a device that is implemented by programming a commercially available computer.

Of course, as with hardware patents, one can reasonably object that a specific software patent may be invalid on grounds of vagueness, obviousness, or prior art, but that is not an argument for getting rid of software patents altogether.

Perhaps the full Federal Circuit will take this as an opportunity to invalidate this kind of broad software patent.

How about we just divest ourselves of software patents altogether? Software is already protected under copyright and potentially trademark.

So you want to replace software patents with...protection that lasts longer?

What nobody has been able to explain to me is why it is legitimate to patent a device that is based on long-known physical principles, and implemented by assembly from commercially available parts equipment, but somehow not legitimate to patent a device that is implemented by programming a commercially available computer.

Of course, as with hardware patents, one can reasonably object that a specific software patent may be invalid on grounds of vagueness, obviousness, or prior art, but that is not an argument for getting rid of software patents altogether.

Replace what? Software is already subject to copyright law. One should not be allowed to patent mathematical equations. That's all software is, math, 1's and 0's, addition/subtraction/division/multiplication. Software patents are ridiculous and serve no purpose but to stagnate innovation. Software patents are how garbage like 1-click ordering turn into lawsuits because some fool grants a patent for such a trivial task. If I can make something that performs the same task as you did without copying your code, other than common calls. I should be able to do so. At that point competition comes from the person who can create the most efficient code.

I don't understand why the same people who baulk at the thought of patenting literature don't bat an eyelash at patenting software. I've also never met a programmer that supported patenting software.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

UI design, like the "swipe to unlock" patent, isn't a mathematical formula. I need someone to help me connect the dots here.

There is plenty of prior art for swipe to unlock in the physical world. In the software world I believe it is pretty trivial to implement this type of design and should not be a patentable invention, and I've probably seen it in a few games here and there over the years.

I could possibly see a patent on a particular style of lock, but even that is a bit of a stretch in the software world. UI design is a graphical representation, and is most likely protected under copyright, much as artwork is protected the same way. To claim a patent for artwork would be absurd.

Perhaps the full Federal Circuit will take this as an opportunity to invalidate this kind of broad software patent.

How about we just divest ourselves of software patents altogether? Software is already protected under copyright and potentially trademark.

So you want to replace software patents with...protection that lasts longer?

What nobody has been able to explain to me is why it is legitimate to patent a device that is based on long-known physical principles, and implemented by assembly from commercially available parts equipment, but somehow not legitimate to patent a device that is implemented by programming a commercially available computer.

Of course, as with hardware patents, one can reasonably object that a specific software patent may be invalid on grounds of vagueness, obviousness, or prior art, but that is not an argument for getting rid of software patents altogether.

Copyright may last longer, but it's not subject to certain protections that patent gives you, for example independent invention. It's also much narrower in what it covers.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

UI design, like the "swipe to unlock" patent, isn't a mathematical formula. I need someone to help me connect the dots here.

The concept of swipe to unlock has existed for a long time, but was first 'patented' and "added to smartphones" only recently. It actually is prior art and had been for several hundreds of years. It's in all old building doors in southeast Asia used swipe to unlock.

Further, i think, all code can be construed as a mathematical implementation of real world functions.

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

UI design, like the "swipe to unlock" patent, isn't a mathematical formula. I need someone to help me connect the dots here.

The concept of swipe to unlock has existed for a long time, but was first 'patented' and "added to smartphones" only recently. It actually is prior art and had been for several hundreds of years. It's in all old building doors in southeast Asia used swipe to unlock.

Further, i think, all code can be construed as a mathematical implementation of real world functions.

It is not legal to patent a "natural law" or "series of mental steps", and math falls under both. However, if you get right down to the basis of it, any device that uses physical contact between parts relies on the natural laws of electricity making the atoms in each part repel each (or have a chemical reaction). At some point you have to stop going down the rabbit hole.

One should not be allowed to patent mathematical equations. That's all software is, math, 1's and 0's, addition/subtraction/division/multiplication.

Sorry, but that's a frankly silly objection. Everything in the physical world can be described with mathematics and expressed in the form of ones and zeros. Indeed, with more and more devices manufactured by automated, computer controlled factories (and increasingly, 3D printers), this will become increasingly the case. Is the difference between a mathematically described device (say an automobile) that is implemented on a computerized factory, and a mathematically described device (say a video player) that is implemented on a microprocessor really so profound that one should be patentable and the other not?

If "... the Supreme Court has made it clear that merely implementing a mathematical formula on a computer does not transform it into a patentable invention," shouldn't that invalidate all software patents? Since that's exactly what a software patent is....

UI design, like the "swipe to unlock" patent, isn't a mathematical formula. I need someone to help me connect the dots here.

Well... I disagree? Swipe-to-unlock is a perfect example of taking an unpatentable concept (because physical sliding door latches have been around for centuries) and making it patentable by simply saying "it's on a computer! [or smartphone]," and computer software is fundamentally all just math...

Just math? It's way more than "just math". It's math!

And yes, slide-to-unlock is a function which can be described in mathematical notation. Probably something like:p_i - p_0 > d_s & i < d_t => unlock()where p_i is the position of the finger at the time i (possibly over a single dimension but we could generalize by adding additional dimensions and using something like an euclidian distance function to determine the spatial movement from i=0), and where d_s and d_t are the space and temporal thresholds.

Timothy B. Lee / Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times.